Not everyone has the funds to pay off their car title loan in full, but there are still ways to get out of debt faster. Finding a strategy that works for your finances can save you hundreds, if not thousands, of dollars in the future and help you avoid spiraling into debt.
If you want to get out of a title loan, you can negotiate with your current lender or take out a new, more affordable loan. If that’s not possible, there are other options, but they come at the risk of damaging your credit score.
1. Pay back the loan
In some situations, it may be impossible to pay off your car title loan, but you can put the brakes on the borrowing cycle. First, contact your title loan lender and ask how much you’ll pay back. Be sure to check for any fees or penalties associated with early repayment or loan satisfaction records.
Next, decide where you can get the funds to pay off the loan. Consider using the following methods:
- Borrow money from friends and family.
- Take advantage of assets with cash value, such as stocks, life insurance, and retirement accounts. Keep in mind that retirement accounts have early withdrawal tax penalties. If you’re confident you can repay it on time, consider turning your withdrawal into a loan if possible.
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Create a budget to control your spending and pay off your debt faster. Review all your bills and credit card accounts to assess what you can live without, especially checking for automatic debits to your bank account.
- Start a side hustle to make extra money or sell valuable items you can’t miss.
- Ask your employer to pay you in advance. Or consider using a cash advance app that can provide you with funds that can be repaid with future paychecks. Cash advance apps typically charge lower fees than traditional payday loans, but they still come at a cost.
2. Take out a personal loan
Another option is to apply for a new, lower-cost loan and use the funds to pay off the title loan. You can refinance your title loan using a personal loan with bad credit. Since it’s unsecured, there’s no risk of losing your car if you can’t make the payments. However, if you fail to make payments, you run the risk of being chased by debt collectors.
If you have a low credit score, it can be difficult to qualify for competitive personal loan rates. Still, bad credit loan interest rates can be less than 36%. The new loan should have a lower fixed interest rate, lower monthly payments, and a longer repayment term. As long as the loan is offered on better terms, it will be cheaper than continually rolling over a title loan.
Check with your bank or credit union to find out about available personal loans, interest rates, and repayment terms.
Why you shouldn’t roll over your title loan
“If you don’t pay off your loan on time, it rolls over into another cycle with additional fees,” said Bruce McCrary, senior vice president of communications at the National Credit Counseling Foundation. “This creates a very difficult situation for people who are already struggling to make repayments. This is the very definition of a debt cycle.”
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3. Renegotiate loan terms
Lenders may be willing to negotiate if you can demonstrate your financial need and ability to repay the current terms. You may be able to negotiate lower monthly payments. For example, keep in mind that a longer repayment period will lower your payments, but it will also reduce the value of your car. You don’t want to owe more than the car is worth.
When negotiating, ask for a lower interest rate, lower monthly payments, longer loan term, or a combination of the three. Make sure you can afford the new terms and get all the details in writing. Keeping your accounts in good standing with affordable terms can help you pay off debt and keep your credit healthy.
4. Check out the military financing law
The Military Financing Act is a measure adopted in 2006 that is designed to protect active-duty military personnel and their spouses and dependents from predatory lending practices. The MLA includes safeguards such as capping loan interest rates at 36% and prohibiting loan prepayment penalties. This law and its protections apply to vehicle title loans.
If you believe your loan violates the MLA, your first step may be to contact your local Judge Advocate General (JAG) office. Your local JAG can provide more information about your rights. If you don’t know where your nearest JAG office is located, try using the JAG Legal Assistance Office locator.
5. Sell your car to avoid default
Consider all other options available to you, and if you’re at risk of defaulting on your loan, consider selling your car and using the proceeds to pay off your debt. This works best if your auto loan debt is less than the car’s current market value. If you’re considering this option, check with your lender first to find out the exact repayment amount for your loan. As always, check to see if there are any prepayment penalties or other types of fees.
6. Request for debt consolidation
If you can’t afford to pay the full amount, your lender may be willing to accept a reduction, especially if you’ve already missed a few payments. This method is called debt resolution and can be done on your own or with the help of a third-party debt resolution company. Once you agree on the amount, get the details in writing and make sure both parties sign the document. This prevents the lender from asking for more money later.
7. Consider Chapter 13 Bankruptcy
Although bankruptcy cannot discharge secured debt, restructuring the debt through Chapter 13 may result in longer repayment terms and lower interest rates. This type of filing creates a repayment plan for all your debts, including your car title loan.
Payments are made to a court-appointed trustee over a repayment period, typically three to five years. Keep in mind that bankruptcy can also seriously damage your credit and remain on your report for up to seven years from the filing date. Therefore, use this option as a last resort. If you choose this route, be sure to find a qualified bankruptcy attorney.
conclusion
A title loan may have been your only option when you borrowed, but thanks to these title loan loopholes and workarounds, that doesn’t mean you have to stay with a loan forever. Negotiating with your lender or looking for a personal loan with bad credit may help you avoid fees, lower interest payments, and avoid foreclosure. Always remember to stay on track with your payments until you pay off your debt, even if it means sacrificing other parts of your budget.